RBA makes rate decision amidst cut speculation

Following a drop in the consumer price index, the Reserve Bank of Australia has announced the outcome of its May board meeting.

The Reserve Bank of Australia has reduced the official interest rate to 1.75 per cent, the first move since May 2015.

The ASX futures market had priced in a 53 per cent chance of rate cut for today after reacting sharply to the news of a surprise drop in the consumer price index, with the index falling 0.2 per cent quarter on quarter.

Out of the 28 economists and commentators surveyed by comparison website finder.com.au, CBA equities economist Savanth Sebastian was the only one to predict the cut.

Prior to the announcement, Mr Sebastian said while there wasn’t a “screaming need for interest rate to be cut on economic activity grounds”, the low inflation result for the March quarter opened the door for the Reserve Bank to cut rates if deemed necessary.

“When it comes to inflation, central banks across that globe are facing the same concerns,” said Mr Sebastian.

“The bottom line is that underlying inflation is undershooting the 2-3 per cent target band and that suggests little risk in cutting rates a little further.”